Duopolistic positioning and pricing competition with variety‐seeking and strategic consumers

Abstract This paper examines a duopolistic market in which two firms compete on their positioning and pricing decisions. Consumers may be variety‐seeking or non‐variety‐seeking, and strategic or myopic, in their repeated purchases. The competing firms first determine the positioning and then the prices in two selling periods under either price commitment or dynamic pricing. Contrary to the conventional wisdom that variety‐seeking consumers are less profitable consumers, we find that firms may benefit from more variety‐seeking consumers under either pricing scheme when some of these consumers are myopic. Strategic consumer behavior always intensifies the competition and hurts the firms. Under each pricing scheme, either myopic variety‐seeking consumers or non‐variety‐seeking consumers can be the most profitable consumer group, while strategic variety‐seeking consumers are always the least preferred consumer group. Compared with dynamic pricing, price commitment softens horizontal competition and increases profits. When the firms can choose freely between price commitment and dynamic pricing before they engage in pricing competition, they may adopt asymmetric pricing schemes in equilibrium.